By Gail MarksJarvis, Chicago Tribune –
After the financial stress of the last few years, your tax return this year might offer you some of the first relief you’ve had in a long time, but it also might deliver some disappointment.
If you were out of a job for part of 2011, you may find yourself able to qualify for lucrative tax credits and deductions you can’t normally get. At the same time, however, Uncle Sam will continue to make an unpleasant demand if you were one of the first-time homebuyers who used a $7,500 tax credit in 2008 to buy a new home.
People who took that credit in 2008 have to pay it back, said Robin Christian, senior tax analyst for Thomson Reuters. If you were among people who bought a house in 2008 and forgot the obligation, you need to start paying. Your obligation began in the 2010 tax year, and you had 15 years to pay it off.
Various versions of housing credits have been used to get people to buy homes since 2008. And the lucky people who used those credits in years after 2008 do not have to repay the money. Sorry, but it’s true.
Another surprise for taxpayers this year might be the tax bill coming due for a Roth IRAs. People scrambled in 2010 to convert a regular, tax-deductible IRA into a Roth IRA because in that one year they were allowed to spread the taxes they owe over 2011 and 2012. With the passage of time, you might have forgotten, but don’t. “You can be sure the IRS is keeping track,” Christian said.
Aside from unexpected tax responsibilities, you might be pleasantly surprised by tax reductions you can get because of a low income in 2011. Families should consider:
—Low income credit and child tax credit. For people with low incomes and especially those with children, tax time can be a way to get as much as $5,751 back from the government from the earned income tax credit. If you are single, with no children, you could qualify for some credit with an income up to $13,660. If you are married with three or more children, the income cutoff is $49,078. The credit depends on the size of your family and income. If you have children, there’s a credit of up to $1,000 per child. It begins to get phased out once a couple’s income goes over $110,000 or a single parent’s is $75,000.
—College credit. The American opportunity tax credit for up to $2,500 of college expenses is available to singles with modified adjusted gross incomes up to $80,000 and couples with $160,000. It applies to four years of college. If you are just above the income level, consider opening a deductible IRA if you meet the requirements. You have until April 17 to do this for your 2011 return. Individuals can put up to $5,000 into one, and that will reduce their income, possibly positioning a taxpayer to meet the threshold for large tax credits. If you are older than 50, you can stash away $6,000. And nonworking spouses can do the same if their spouse is working.
There’s also the lifetime learning credit for up to $2,000 in a nondegree program. Singles must have incomes no higher than $60,000; for couples it’s $120,000. With income too high, there’s a deduction for college tuition.
—Adult children and parent care. With jobs tough to find, adult children have moved back into parents’ homes. They can be deducted as dependents if their income is under $3,700 and you provide at least 50 percent of their needs, said Bob Meighan, a vice president of TurboTax.
People caring for an elderly parent can also claim them as a dependent if the senior’s income is less than $8,000. If multiple siblings are providing more than 50 percent of their parent’s support, each sibling that’s contributing more than 10 percent is eligible to get a deduction for expenses such as adult day care, and this applies whether parents live with you or not, according to the National Association of Enrolled Agents. See Publication 503 at IRS.gov.
—Job troubles. If you moved to take a job or look for a job, you can deduct moving expenses even if you do not itemize on your tax return, said Meighan. You might also be able to deduct other job-search expenses if you itemize and if they total at least 2 percent of your adjusted gross income, he said.
—Medical bills. Typically, it’s tough to get the medical deduction on taxes because costs must exceed 7 percent of your adjusted gross income. But if you lost your job and paid for COBRA medical insurance, you could qualify.